[ By Andy Scott, Managing Editor, China Briefing ]

Central China, initially overlooked by many foreign investors as being too far from the ports in Tianjin, Shanghai and Shenzhen, is emerging as an essential destination for multinationals in China.

While still lagging significantly behind the coast, the six Central provinces of Anhui, Henan, Hubei, Hunan, Jiangxi and Shanxi have seen foreign investment take off over the past year, increasing more than 50 percent from 2006. The economies of the six provinces now make up 20 percent of the national total. While the region still needs further reform and opening-up, increased investment in infrastructure, favorable government polices, and rising consumer incomes are driving many to branch out of the hyper-developed coastal regions and move inland.

Location, location, location

Central China boasts some of the most connected cities on the mainland thanks to a well developed rail network. The network integrates dozen of trunk lines and hundreds of branch lines, accounting for 23 percent of the national rail mileage. According to regional authorities, the rail network handles 36 percent of the nation?s passenger flow and 30 percent of the goods traffic.

The importance of the region as a crossroads for China was brought home earlier this year when much of South China up through Hubei and Henan provinces was brought to a standstill by severe winter storms that disrupted train schedules and brought down power grids, leaving millions stranded or without power. According to government figures, the region has seen a 40 percent increase in road and waterway traffic in the last 10 years. Passenger rail traffic has risen 70 percent while goods traffic is up by 85 percent.

Increased spending on infrastructure has allowed cities like Wuhan to better integrate with Beijing, Shanghai, Guangzhou and Hong Kong, as well as European and Central Asia capitals. But will this integration mean increased foreign investment? As was pointed out in the November 2006 issue of China Briefing (available in the archives section of www.china-briefing.com), moving inland brings with it major logistics costs for manufacturers.

For those that move inland, getting to the sea means turning to China?s road, rail, and inland waterway networks to transport their cargo to the coast. While transport infrastructure has grown rapidly in recent years, it still lags industrialized countries ? capacity constraints exist and most of the infrastructure outside the developed eastern coast is not built to handle a modern transport industry.

China Rail map system can handle only around 30 percent of demand for the Yangtze corridor according to a 2007 Jones Lang LaSalle study. A high proportion of the rail network is not double tracked (of 72,000 km of rail, only 24,000 km is dual track), and priority is given to coal and raw materials rather than industrial goods, forcing many manufacturers to resort to trucks to ship their products.

To know more, the whole issue is available (after a free subscription) on China Briefing website with others archives
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